Fair Rental Value


C

C Cheski

I would appreciate help with determining how to calculate
fair rental value for the purpose of determining whether I
have provided more than 50 percent of the support for a
possible dependent.

My mother lives with my husband and me in our three-bedroom
condo. I understand that the fair rental value does not
automatically equal our mortgage payment. What I do not
understand is whether the fair rental value equals the
amount of rent she would pay for living in the entire condo,
or whether I need to somehow find out what someone would pay
to live in one of the three bedrooms in such a condo.

If this latter is the case, would it be reasonable to take
rents I've found for similar three-bedroom new-construction
condos in our neighborhood and assume the fair rental value
of one bedroom would be one-third the full rent being
charged?

I will be grateful for any guidance on this question.

Many thanks,

Cynthia Cheski
Chicago
 
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B

Bill

(e-mail address removed) (C=A0Cheski) posted:
I would appreciate help with determining how
to calculate fair rental value for the purpose of
determining whether I have provided more
than 50 percent of the support for a possible
dependent.

My mother lives with my husband and me in
our three-bedroom condo. I understand that
the fair rental value does not automatically
equal our mortgage payment. What I do not
understand is whether the fair rental value
equals the amount of rent she would pay for
living in the entire condo, or whether I need to
somehow find out what someone would pay to
live in one of the three bedrooms in such a
condo.

If this latter is the case, would it be reasonable
to take rents I've found for similar
three-bedroom new-construction condos in
our neighborhood and assume the fair rental
value of one bedroom would be one-third the
full rent being charged?
That sounds reasonable.

Pub 17 has a fairly clear definition of "fair rental value."
I'll quote, for you convenience:

"This is the amount you could reasonably expect to receive
from a stranger for the same kind of lodging." <eliding
here>

"If you provide the total lodging, the amount of support you
provide is the fair rental value of the room the person
uses, or a share of the fair rental value of the entire
dwelling if the person has use of your entire home." <snip>

These two selected quotes would seem to support the
technique you suggest. The discussion can be found on page
30 of Pub 17, and you might want to keep that in your notes
for your tax filing, in justification of your support claim.

Bill
 
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A

A.G. Kalman

C said:
I would appreciate help with determining how to calculate
fair rental value for the purpose of determining whether I
have provided more than 50 percent of the support for a
possible dependent.

My mother lives with my husband and me in our three-bedroom
condo. I understand that the fair rental value does not
automatically equal our mortgage payment. What I do not
understand is whether the fair rental value equals the
amount of rent she would pay for living in the entire condo,
or whether I need to somehow find out what someone would pay
to live in one of the three bedrooms in such a condo.

If this latter is the case, would it be reasonable to take
rents I've found for similar three-bedroom new-construction
condos in our neighborhood and assume the fair rental value
of one bedroom would be one-third the full rent being
charged?
There is no set of rules available from the tax authorities
on how you should determine the FRV. Each situation has its
own set of facts and circumstances. In your case the best
approach is to use data from comparable listings of rooms to
rent. You can use newspaper ads and/or you can contact
rental agents or property management agents to get an idea
of what a furnished or unfurnished room rental in your
neighborhood goes for. Just let them know whether you are
asking about furnished or unfurnished depending upon your
mother's situation.

What is clear, is that you can not use the FRV for your
condo as she does not have exclusive use of it.
 
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